HARTFORD — Gov.Dannel P. Malloyopened the 2012 legislative session Wednesday with plans for education reform, pension funding changes and the largest increase in funding for affordable housing since Gov. William A. O'Neill was in office more than 20 years ago.

The plans require multiple changes in the state budget, including $329 million in new funding and $120 million in spending cuts in a proposed budget of $20.729 billion for the fiscal year that starts in July. Malloy did not highlight any of the cuts in his second State of the State Address, but his budget summary shows that $4.8 million would be cut from the Connecticut Independent College Student grant that goes to students at in-state private colleges like Quinnipiac University in Hamden and Goodwin College in East Hartford. The cuts also include $629,000 from the Capitol Scholarship Program, while a separate category with nearly $30 million to aid students in public colleges would not suffer any cuts.

In the education session, Malloy is offering an overall plan that calls for $128 million in spending increases in various education categories. That includes an additional $50 million in educational cost-sharing funds that would go largely to the 30 school districts with the worst results on standardized tests. An additional $12 million will be spent on early childhood programs and $13 million for recruiting and developing teachers, particularly those who would work in the low-performing schools.

"We will require these districts to embrace key reforms or they will not get the money,'' Malloy told a packed House chamber in his second State of the State Address.

While the $128 million would be a clear boost in funding, it would represent a tiny percentage in a state that spends more than $5 billion annually on public education in 169 cities and towns.

As the economy remains sluggish and revenues have dropped lower than expected, the original projection of a surplus of $438 million in the next fiscal year has now been cut to a razor-thin surplus of $1.6 million – essentially a rounding error of far less than 1 percent in a budget of more than $20 billion.

In addition to adding more money for education, Malloy said he would reform the long-held tenure system in the public schools.

"I'm a Democrat. I've been told that I couldn't, or shouldn't, touch teacher tenure,'' Malloy said during a speech that lasted about 40 minutes. "It's been said by some that I won't take on the issue because it will damage my relationship with teachers. … This is the year to reform teacher tenure. So let's get it done.''

During last year's address to the legislature, Malloy also mentioned teacher tenure in a statement that surprised some observers as a bold move by a Democrat. But when the legislative session ended months later, no major reforms to tenure had been enacted by the Democratic-controlled legislature.

Besides education, the second biggest reform this year will involve state employee pensions, according to the Malloy administration. That includes pumping more money annually into the underfunded pension fund. Malloy says the various moves would save taxpayers nearly $6 billion over the next 20 years, but the legislature's nonpartisan fiscal office said recently that one of Malloy's calculations on pensions was wrong by $3.1 billion over 20 years.

In the tradition of opening day, it was a festive atmosphere Wednesday at the state Capitol – like opening day of a new baseball season. Politicians of all stripes came to the Capitol to meet and greet – and in some cases to solicit votes for future runs for office. Many of the former House Speakers arrived in an annual tradition, including past Speakers Thomas Ritter of Hartford, Moira Lyons of Stamford, and James Amann of Milford. Former U.S. Rep. Christopher Shays, who is running for the U.S. Senate in an August primary against Greenwich wrestling entrepreneur Linda McMahon, shooks hands with well-wishers around the building.

State Rep. Terry Backer, who has been battling brain cancer, received hugs from Senate Republican leader John McKinney of Fairfield and former House Majority Leader Bob Frankel. "You look good,'' Frankel told Backer.

"By the grace of God, I'm here,'' Backer said.

Malloy walked into the chamber at about 12 noon to loud applause from the bipartisan crowd. Even though Republicans and Democrats clash sharply under the Capitol dome, Opening Day is always a time for good cheer and bipartisanship.

In one of his first remarks, Malloy acknowledged Backer, along with three other legislators who have recently had health problems – Sen. Edith Prague, Sen. Edwin Gomes, and Rep. Gail Hamm. Those legislators received a round of applause after Malloy said, "We're very glad to see you here today.''

Malloy noted that Connecticut, like other states, had been facing a massive deficit last year that was partly a financial hangover from the huge downturn on Wall Street that started in September 2008. But after the largest tax increase in Connecticut history, the state has closed most of the gap and is teetering between a deficit and a surplus. Malloy, who controls spending in many state agencies, has pledged repeatedly that the state will end the fiscal year on June 30 in the black. Much of the funding has come from tax increases on income, sales, corporate profits, and cigarettes, among others.

"Make no mistake about it. We will end this year in the black,'' Malloy said in his State of the State Address.

Today, Malloy says the state has "passed through the crucible of that crisis'' and created 9,400 new, private sector jobs during the year.

"Ladies and gentlemen, it is time for us to lead again,'' Malloy told the crowd in the packed Hall of the House in Hartford. "Let's be big. Let's be bold.''

Looking down the road, Malloy says he sees a huge revival of the Connecticut economy – which has not created any net new jobs in the past two decades despite the efforts of the past three governors.

Not long after returning from a multi-day trip to Davos, Switzerland, Malloy said, "We need to continue to make sure the entire world knows Connecticut is open for business.''

"This economic revival will not happen overnight. It can't,'' Malloy told the crowd. "You can't undo 22 years of economic stagnation in one year.''

Malloy touted the bipartisan special session last fall that led to a jobs package with near universal agreement from Republicans and Democrats. That package was passed on the same day that lawmakers clashed sharply over Malloy's plan to spend nearly $300 million for the Jackson Laboratory to create 300 jobs at the University of Connecticut Health Center campus in Farmington.

"I want everyone in this chamber to know that the work we did together is already paying off,'' Malloy told lawmakers regarding the bipartisan package. "Jobs are being created as we speak.''

The 2012 session opened Wednesday with a host of issues on tap, ranging from reforming public education to selling alcohol on Sundays.

The busy agenda, in an election year, will include debates over raising the minimum wage, allowing same-day voter registration and using red-light cameras to catch wayward motorists. Depending on the measure's prospects, lawmakers might also debate whether to abolish the death penalty in favor of life in prison without parole.

In a surprise to many lobbyists at the state Capitol, legalizing online gambling will not be an issue this year. The legislature's public safety committee will not be offering a bill on online gambling during the short session, and Malloy said it is highly unlikely that the issue will come up.

After a ruling by theU.S. Department of Justiceand some initially positive comments by Malloy, many insiders thought that the state would approve some form of Internet gambling this year. But the issue proved to be too complicated to resolve during a short session scheduled to conclude in 13 weeks.

McKinney said he likes Malloy's education reform plan, but is concerned about continued spending increases.

"I think the reform agenda is a good one. I think we need to set our priorities and reduce spending in other areas," McKinney said.

McKinney thinks Malloy's prediction of a state budget surplus by 2014 is "hopeful on a huge economic rebound, and I hope he's right, but we have not seen that economic rebound. … We just learned last week that last year was the worst year on record for housing sales in in Connecticut. That's a strong barometer for our economic recovery."

"And, again, we're continuing to increase spending above and beyond what our budget can sustain," McKinney said. "We know that spending more money on education does not produce better results. The governor has said that himself. It's how and where you spend the money and holding people accountable to spend it the right way. And on that issue we are in agreement with the governor, because we've been pushing for those [reforms] for years. But you can still look at your $20 billion budget, find savings of $120-plus million and replace that spending with better spending on education reform."

He added, "I think his entire education package is a good one. There are some issues to disagree with, but we're not going to get everything we want. We want to work with him in a bipartisan way like we did on the jobs package because this is maybe the single most important long-term issue for our state – getting every kid a great education. And right now it's failing too many kids."

House Speaker Christopher Donovan, D-Meriden, said of Malloy's speech: "A lot of good stuff there. … A lot of good stuff there. Jobs and education go hand in hand. We need to revitalize our education and also create jobs. It's a perfect match. I think it speaks well for the future of our state."

Asked about Republicans' skepticism about increased spending amid negative economic news for the state, Donovan said, "What a difference a year makes in terms of a balanced budget. The governor says that we'll balance the budget, [and] the numbers I see, the budget will be balanced. I think it's time to say, hey, let's be aggressive about creating jobs, and again we all know we need to do something on education. So those are the two biggest things that I see from this speech – education and jobs. I think it's a winning combination."

Donovan, who supports public employee unions, was asked if he saw any problems selling tenure reform to teachers. "The teachers are saying they want to be part of the solution to this, too," Donovan said. "I think they're looking froward to the discussion. Getting everybody at the table in a positive way is a good thing."

Allowing Sunday Sales

The Sunday sale of alcohol will be debated once again in one of the most heavily lobbied issues at the Capitol. The difference this year is that Malloy not only wants alcohol to be sold on Sundays, but he also wants to allow package stores to remain open until 10 p.m. and bars until 2 a.m. seven days a week. Some consumers have complained about the inconvenience of traveling across the border to Massachusetts, Rhode Island or New York State if they want to buy beer or wine on Sunday.

"I'm trying to give the consumer a break here,'' Malloy said recently in an interview with The Courant's editorial board. "I'm trying to treat the consumers well. … It's proven itself everywhere else.''

The lobbying has included full-page advertisements in The Courant that call for Sunday sales and tell consumers to head to http://www.EndCTBlueLaws.org. The group's website says that it is a "grass-roots movement'' to push for Sunday sales. But the website also shows that the main funders of the association are major corporations such as Stop & Shop Supermarkets, Big Y Foods, ShopRite and other food stores that have combined retail sales statewide of $5.7 billion annually.

The clash over Sunday sales has been a perennial battle at the Capitol, going back several governors. Republican M. Jodi Rellwas against it, but Malloy stepped forward with a proposal this year after remaining on the sidelines last year. Malloy's support changes the dynamic because many Democratic legislators routinely voted in favor of Malloy's agenda during his first year in office.

Led by chief lobbyist Carroll Hughes, the package stores have argued for years that they would not make additional profits because the sale of alcohol would simply be spread over seven days instead of six. In addition, they said they would face increased costs from opening the store on a seventh day and possibly paying overtime to a worker on a Sunday. The liquor sellers complain that the Sunday closures are highly inconvenient for consumers, including on busy days like Super Bowl Sunday.

Raising Minimum Wage

House Republican leader Larry Cafero of Norwalk said he is not sure if the Democratic-controlled legislature will move in lock-step to approve Malloy's agenda in the same way that it did in 2011.

"He made it happen last session,'' Cafero said. "It remains to be seen whether he can duplicate that success rate with his own party. We'll have to see. He had a honeymoon period with his own party. They wanted to be accommodating and supportive. Time will tell whether that will continue in this next session.''

Cafero says that Malloy and the legislature need to get the state's fiscal house in order before moving on to other issues. He said, for example, that the timing is bad for potentially raising the minimum wage under a proposal by House Speaker Chris Donovan. If approved, the increase in the minimum wage from $8.25 to $9 could occur as soon as July — with a second increase to $9.75 per hour in 2013.

The state budget has been teetering on a deficit despite revenue gains from the largest tax increase in Connecticut history that raised tax rates on income, sales, corporate profits and cigarettes, among other tax increases.

"We're not on solid ground. We're on quicksand," Cafero said, reflecting what small business owners have told him. "You want to raise the minimum wage? Now? Not after we've just hit every small business with the highest level of taxes in our history.''

Malloy himself was relatively lukewarm in his initial comments regarding Donovan's minimum-wage proposal, but the matter will clearly be debated over the coming months. Although some Democrats strongly favor increasing the minimum wage, the idea is opposed by the Connecticut Business & Industry Association and the National Federation of Independent Business.

Education Reform

One of Malloy's signature initiatives for the session is education reform. Although the improvements would cost millions of dollars, the changes represent a tiny fraction of the overall costs in a state that spends more than $5 billion annually on education at the state and local level.

Malloy said he is simply trying to guarantee universal pre-K education for families that cannot afford it. The system would remain the same for the majority of families who currently pay for preschool.

"In Avon, Simsbury, and Darien, every child who wants one, gets one,'' Malloy said of early childhood education. "I am not calling for three years of kindergarten. What I'm calling for is that no child be denied a pre-kindergarten learning experience because of their parents' financial circumstances. … Cathy and I, our boys had pre-K because we could afford it.''

Senate President Donald Williams, the highest-ranking senator, said his 22-member Democratic caucus is focused like a laser beam on trying to kick-start the still-sluggish economy and reduce the state's unemployment rate.

"Our focus needs to remain on jobs and the economy,'' Williams said in an interview. "There will be many other issues, including education, energy, the response to the reports on the hurricane and the October snowstorm. But the first, second, and third priority will be jobs and getting the economy moving.''

Williams did not rule out discussions on controversial issues in an election year, including repealing the death penalty.

"If there are the votes to repeal the death penalty and replace it with life in prison without parole, then we will take it up,'' said Williams, adding that no vote count has been taken. "It will come up on the Senate floor if we have the votes.''